Syrah Resources Limited (SYR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Syrah quarterly update. [Operator Instructions] I'd now like to hand the conference over to your first speaker today, Mr. Shaun Verner. Thank you. Please go ahead.

Thanks very much. Good morning, and thank you to everyone for dialing in today. With me on the call today is Stephen Wells, our Chief Financial Officer; and Kristian Stella, our GM of Business Development and Investor Relations. This morning, we'll walk through some selected slides from the presentation deck we released along with the report covering Q3 operational focus, market conditions and the strategic landscape for natural graphite and the anode active material supply chain as it relates to manufacturing of both lithium-ion batteries and electric vehicles. So I'll start by moving to Slide 3. The trend towards decarbonization of the transport sector continues to gain momentum at pace as the mass adoption of EVs occurs globally. Graphite will continue to be used as the primary anode material, despite the considerable discussion around potential long-term substitution that occurred during the quarter, and we'll come back to that a little later on in the discussion. We continue to observe urgency from policymakers to support the transport sector transition to electric vehicles and to secure the strategic and critical battery minerals required as mass adoption of electric vehicles occurs. The profile of graphite as a strategic critical raw material is growing, which is not surprising given graphite is the highest intensity of use material by mass of any cathode or anode material in the battery, and the graphite supply chain is 100% reliant on China at the present time. We may, at times, sound like a broken record on this point. But the lack of supply diversification that exists today has the potential to severely impede the entire value chain expansion, and it's, therefore, so important to understand. Balama remains the best global graphite resource on many parameters. The capital is sunk. Operations, sales and logistics infrastructure is in place. And product mix is well suited to the supply of the growing battery market with product accepted by a global customer base. This all uniquely positions Balama to capitalize on the wave of demand to come for battery minerals. As the EV market returns to growth, it can be tempting to be caught up in momentum around other long-term options or predevelopment projects, but the reality in this market is really clear. China and Balama can sustainably supply the natural graphite needs of the anode supply chain for many years to come. And downstream development of our Vidalia active anode material facility is a critical plank in the diversification of supply for the global automotive supply chain. We're on track to be the first vertically integrated producer of natural graphite anode material ex-China, with the capacity to sustain that position for a significant period of time. We view our operation in Vidalia as the most progressed option for U.S. customers for a high-volume, localized and ESG-verifiable source of natural graphite anode supply, attributes that are becoming increasingly important tactically and strategically for governments, battery manufacturers and automakers. I'll move to Slide 4, which gives an overview of our ESG credentials. Based on our supply chain interactions, environmental, social and governance performance is becoming a topic of increased focus and urgency amongst potential customers. We believe Syrah is very well positioned as sustainability credentials of battery raw material supply come under increased scrutiny. Firstly, our superior environmental credentials are demonstrated through the impact of natural versus synthetic graphite; and secondly, the best practice, environmental, social and governance standards that we've embedded at Balama and across the Syrah Group more broadly have received significant external recognition as well as being the right thing to do and underpinning our operations. Importantly, Balama supply, vertically integrated with anode production at Vidalia, would provide a source of anode supply that's 100% ESG verifiable, something that's currently challenging for ex China battery and auto manufacturers. There is currently no reliable way for consumers to get comfortable with the social, environmental or governance impacts of most Chinese-produced material. And we believe that Syrah provides a clear solution to that problem. Moving on to Slide 5 to provide an overview of the third quarter where despite what equity markets might indicate, the impacts of the COVID-19 situation continue to heavily weigh on both certainty and confidence in global industrial markets. Starting with Vidalia, Syrah continues to progress towards becoming the first vertically integrated producer of natural graphite active anode material outside China. Post quarter end, we achieved first production of active anode material via toll processing of purified spherical graphite, which is the anode precursor, from the company's operating facility in Vidalia. Syrah is using tolling or external processing of the carbonization step to accelerate the provision of material to potential customers ahead of the installation of our own furnace in Q1 next year, which will enable active anode material production at Vidalia of equivalent specification to the toll-produced material we're producing at the moment. And that will significantly advance the volume and flow of product's development interaction in the broader market and increase the pace of delivery that we can achieve of material for testing and qualification. This first step is highly important as it begins our optimization efforts in ensuring that products meet the specifications of potential customers and the iterative process of demonstrating capability, which is so important in light of large-scale incumbent Asia-based active anode material producers. As our products are demonstrated to meet expectations, discussion and negotiations of customer offtakes will continue to be progressed to underpin the development of the Vidalia commercial scale expansion. The active anode material produced to date has demonstrated excellent electrochemical characteristics. The product will be optimized by an ongoing process of toll production with dispatch to electric vehicle supply chain participants for commencement of product qualification plans during this quarter, Q4 of 2020. Commencement of product qualification, combined with the delivery of our Bankable Feasibility Study, which is also due for completion in this quarter, will significantly progress the company's strategy of becoming the first vertically integrated producer of natural graphite outside of Asia. Balama provides a strategic ex China source of natural graphite feedstock to vertically integrate with Vidalia, uniquely positioning Syrah to service these markets in anode supply chains, including the growing U.S. and European markets, which as we consistently remind everyone are currently 100% reliant on China for their Battery Anode Material sourcing. At Balama, as you know, production was temporarily suspended in March 2020 due to the impact of COVID-19, specifically travel restrictions limiting the mobility of the Balama workforce and weak end-user demands due to lockdowns, mobility restrictions and the economic uncertainty negatively impacting EV sales and steel production in the first half of the year. Travel restrictions are in the early stages of easing in Mozambique. However, despite the very strong growth in electric vehicle sales in Europe through 2020, China is only just starting now to move to recovery and is still running below 2019 levels on a year-to-date basis as well as U.S. growth having been subdued during the year. As such, improvement in market conditions is just starting to see increased anode production, which has been very positive in the last quarter, but it's yet to flow back into the natural graphite market and overall has not been supportive yet of a production restart at Balama. The company has executed against the cost-out program at Balama outlined in the Q2 update, positioning the asset to preserve cash during the current period of temporary production suspension, whilst also retaining operating and marketing capabilities to promptly restart production once market conditions are supportive. Restart lead time continues to be expected to be 2 to 3 months post the restart decision. Our cash position is in line with forecast at $44 million at the close of Q3. We remain absolutely focused on cash preservation at Balama in corporate and marketing, whilst maintaining the required skill sets to ensure a prompt restart when it's required. At Vidalia and through the development of the Bankable Feasibility Study, efficiency and deployment of spend has been prioritized. Key drivers of the forward cash position remain the timing of restart at Balama and the ongoing progression of interaction with market participants and stakeholders around Vidalia's forward development program. Although the immediate term conditions remain challenged, some comfort can be gained by the leading market indicators observed during the quarter, which we'll touch on in the next 2 slides. So moving to Slide 6, which outlines our most fundamental leading indicator, which is electric vehicle sales. And it appears that the third quarter marked a return to growth in electric vehicle sales, with global EV sales increasing approximately 70% year-on-year in Q3 of 2020 versus sales decline of 17% year-on-year in the first half of the year. It is noted that there's some base effect in these numbers as EV production in China declined in the second half of 2019 and subsidy reductions were implemented, but overall, it's really encouraging to see momentum swinging back to growth with a very strong performance in Europe and China, demonstrating ongoing month-on-month growth. Particularly pleasing is that a large portion of this growth is being led outside China, which is accounting for half of the growth in Q3. Up to 2019, EV sales growth was primarily a China-led story and it's clear that global growth in other markets is also accelerating. Naturally, during this time of uncertainty driven by COVID-19 and its impact on demand and forecast visibility, procurement teams within the supply chain have acted to draw down their inventories and run as lean as possible. And whilst this has been challenging for immediate term sales, it potentially sets up for a more positive pricing environment as demand increases and available inventories are low. I'll hand over to Steve now to talk a little bit about government views on critical raw materials. Steve?

Thanks, Shaun, and good morning, everyone. On Slide 7, we highlight some of the global government initiatives relevant to Syrah Resources, which Shaun referenced earlier, with 2 areas of policies supporting the demand for natural graphite that continued to gain momentum during the quarter. The first policy area is the continued promotion of transport decarbonization and electric vehicle adoption, either through direct encouragement of electric vehicles or discouraging gasoline car sales. The second policy area is the focus on graphite as a strategic critical mineral, with the United States, the EU and China and other governments globally, all designating graphite as a critical mineral, given its importance to battery manufacturing and commercial as well as defense objectives and the current concentration in the supply chain. As outlined on Slide 7, during the quarter, in fact, on September 30, the U.S. President signed an executive order and declared a national emergency in relation to critical minerals supply and specifically referenced that, and I quote, "The United States is 100% reliant on imports for graphite, which is used to make advanced batteries for cell phones, laptops and hybrid and electric cars." Also during the quarter, the European Commission released a document, Critical Raw Materials Resilience, charting a path towards greater security and sustainability, which includes graphite as a critical raw material. Policy commitments to support the decarbonization of the transport sector were ongoing during the quarter, including China's pledge to become carbon neutral by 2060, Europe's $572 billion green stimulus plan and California's commitment to ban new gasoline car sales by 2035, to name a few. During the quarter, Syrah's interactions with government, automakers and other battery supply chain participants indicated increased focus on the benefits of localized supply chains and supply security of these critical battery minerals. To expand on that theme on Slide 8, government and commercial recognition of the strategic importance of battery raw materials supply, and whether that's graphite, lithium, nickel or cobalt precursors, has never been stronger. However, ex China capacity development is lagging expected requirements and is well behind China development progress as China continues to grow and consolidate in the battery supply chain. Disruption caused by shutdowns in China during the early stages of the global spread of COVID-19 demonstrated the reliance of Europe and the U.S.A. on China for supply of lithium-ion battery materials, focusing attention within the supply chain and at the government level. In addition to accounting for the majority of current supply capacity in anode, China is also leading the way in capacity under construction and planned capacity, accounting for 70% of the anode supply capacity under construction and 64% of the capacity planned. As shown on Slide 8, Europe and the U.S.A. are significantly underinvested in anode supply chain capacity. Without short-term action and the ongoing development of projects like Syrah's Vidalia plant, Europe and the U.S.A. risk maintaining their current lack of independence in the strategic battery raw material supply chains for an extended period. And I can't emphasize this strongly enough, but it's also not a political statement. Chinese producers are seeking to consolidate our position, which takes advantage of the expected increase in EV sales globally, but which causes tremendous risk to the global automotive supply chains, and action is required to mitigate this basic procurement risk. I'll now pass you back to Shaun.

Thanks, Steve. And moving to Slide 9. It's with all of this prior discussed context that Slide 9 needs to be considered, specifically, urgency from governments on securing critical battery mineral supply chains is increasing, that policy support is accelerating the decarbonization of the transport sector, that EV sales growth is returning, and yet China is the only geography that's really prepared for this megatrend, which we've known for some time is upon us. Outside of China, there's no supply of natural graphite anode material that's vertically integrated. And globally, there is significant difficulty in certifying anode material that is acceptable from an ESG perspective back to source. Syrah is the most progressive company to provide both of these things, vertical integration and ESG credentials to facilitate supply development to the ex-Asia market. An operating mine with demonstrated high-volume production, sales and logistics capability and customer base and an existing manufacturing facility in the U.S. generating precursor material tolled active anode material and production of active anode material from Vidalia in Q1 2021 to continue facilitating downstream customer engagement. This represents the complete vertical integration of natural graphite active anode material and allows the development of diversification of sourcing risk. Moving to Slide 10, and where we're focused. Clearly, our initial focus is to supply the U.S. market with active anode material from Vidalia, and we also see the potential for Syrah to export from the U.S. with the growing European market a clear target. Providing ex China EV and battery manufacturers with an alternate and complementary source of anode material versus existing sources is something that's valued highly in our interactions with potential customers. There's no doubt that both U.S. and European OEMs are planning for natural graphite use for the foreseeable future. During the quarter, there was significant discussion regarding the potential for graphite substitutes. In particular, Tesla noted its internal development of silicon anode materials. Syrah notes that silicon is already used as an additive in natural graphite anodes, typically at less than 5% of the overall anode composition. And that increased use as an additive has long been a focus of research and development for the anode industry. Specifically on engineering solutions to manage swelling, which negatively impact both cycle life and safety whether used as a high-proportion additive in the existing anode formulations or in looking at the possibility of pure silicon anodes. Although attempts to innovate battery chemistry will be ongoing, we see commercialization of alternate anode solutions to be long-dated and that a place exists for natural graphite in the future. Our interactions in the supply chain absolutely suggest that both U.S. and European OEMs are planning for natural graphite use for the foreseeable future, and they see the potential for a proportionate increase in natural graphite over a synthetic graphite, given cost differentials and product development, with increased focus on localized and ESG-verifiable sources. On to Slide 11. We continue to progress against our milestones for Vidalia and moving through the development steps required to see the company develop this first vertically integrated production facility outside China. The chart outlines the near-term milestones that are planned to technically and commercially de-risk Vidalia as a near-term source of anode supply. Syrah will make a decision to commence construction of a large-scale commercial facility only as we work through these de-risking processes with potential customers and when a material portion of the supply from an expanded scale plant at Vidalia is supported by offtake sales contracts or other forms of co-development. This final quarter of 2020 and the first quarter of 2021 promise a number of important catalysts around this development, and our significant level of interaction in the market continues at pace. So moving to the last slide, Slide 12. The past year has seen an enormously challenging market and trade conditions even before the onset of COVID-19. Syrah continues to position for the inevitable demand pull-through of the electrification of the global transport fleet and the rising importance of the broader energy storage growth dynamic. We maintain the Balama asset for restart readiness in response to market signals and are progressing well with the development of the Vidalia active anode material project and doing that in a manner that we'll see underpinning customer demand incentivize the project's further development. As we look forward, 3 key factors underpin our optimism about brighter times ahead. Firstly, electric vehicle growth will see the anode market grow by 10x in the next decade with the required total natural graphite market supply needing to triple to satisfy that demand. Secondly, Syrah's Balama asset has demonstrated high-quality and high-volume as the largest integrated global producer of natural graphite in 2019 at only 50% capacity, and we remain ready to pick up that mantle upon improved demand. And thirdly, Syrah's Vidalia anode material operation is strategically important and is gaining momentum in market interaction and government profile as the product becomes available for the commencement of qualification. Through Balama and Vidalia, Syrah provides a clear near-term equity exposure to the U.S. and European active anode material market growth driven by electric vehicle manufacturing. The sunk investment, scale and nearer-term ability to take advantage of both Chinese and ex China market developments fundamentally differentiates us from both existing producers and development projects. And we remain absolutely focused on building shareholder value from base that we put in place. And with that, I'll conclude and move across to any questions.

[Operator Instructions] Our first question comes from Rahul Anand from Morgan Stanley.

Can I please start with the prices? I just wanted to understand if you're able to shed a bit more light in terms of sort of the mix of product that was sold in terms of coarse and fines, and then also perhaps the geography, whether the sales were focused on sort of European customers? Or was that all China taking that up?

Yes, sure, Rahul. No problem. First thing I'd say is that the sales volume in Q3 was very small. It's only around 3,000 tonnes. And that was out of a remaining inventory of just over 7,000 tonnes at the end of last quarter. We had some existing product commitments -- product sales commitments, which we continue to move that inventory into. The majority of that remaining inventory had been fines but there were some coarse sales out of stock during the quarter. So more heavily weighted to fines than coarse. In terms of geographic split, we've been clear over the last couple of months that we have been focusing outside of China as part of that process of letting the Chinese market rebalance. It's also obviously been Q3 during 1 of the 2 main quarters of Chinese domestic production, which has helped satisfy demand in that market during that period.

Okay. Understood. And just as a quick follow-up. It's fair to now assume that all that's left on the books is fines. And are you seeing any more inquiries starting to come through from China on the product side?

So as we've said, we're seeing the first early signals of improvements from an EV perspective. I think anode production in Q3 in China was particularly positive, up somewhere around 50% year-on-year and around 20% month-on-month in the last month or so. We haven't seen significant pull-through of that into the natural graphite market at this stage. But -- in terms of inquiries, but that's not too surprising at the moment, given that this is right at the very end of the production season in China, and there's probably the, sort of, highest level of available domestic production has existed through Q3 as well. But if we continue to see the level of month-on-month and year-on-year anode production growth, that has been evident over the last quarter, it does provide some encouraging signs.

Okay. The second question is around that furnace installation that you're flagging for the first quarter. So that's basically the 200 tonnes per annum furnace, is that right?

Yes. We've said previously, it's around 200 tonnes capacity per annum, and that's absolutely sufficient for demonstrating commercial scale production and type of equipment that's used. And it's also sufficient for what we require to continue iterating product and running through the qualification processes. But yes, that's the bulk of them.

So just wanted to understand what the CapEx is for that install and whatever's left over for the qualification side to complete now?

Yes. So we've said previously that Vidalia is drawing about $2 million a quarter. And the installation of that furnace has been included in that cash projection.

Okay. Understood. And then, look, in terms of the BFS, it would be fair to assume -- so the upgrades required, sort of, to go to that 10 million tonne -- or 10,000 tonne per annum, sorry, is largely just the 5,000 tonnes for the milling and then the majority of that spend would probably focused on this thermal furnace. Are you able to, sort of, give us a bit of color as to how much CapEx we should think about in terms of these installs and upgrades? Or is there a sensible way to think about those?

Now that's all information that will be released through the release of the BFS in the quarter. Sorry, guys, we have a fire alarm test here in the office. So yes, we'll provide further information around the CapEx with the release of that BFS through the course of Q4.

Okay. Perfect. Look -- final question. Purification route still remains chemical or rather asset, not thermal. Is that fair? And that's the plan going forward as well for the plant?

Yes, absolutely. The chemical purification process is one which has been demonstrated at scale as being efficient and effective, much more cost-effective than any of the thermal purification routes, and one that's been in place for some time. And I would strongly emphasize the environmental credentials of the processes we are putting in place in the U.S. I think there is a bit of a campaign amongst other potential purification routes to try to paint HF and HCl purification as an environmentally non-preferred option. And I think it needs to be emphasized that these types of purification methods and materials are used very safely, very sustainably and in environmentally sustainable ways in numerous industries in the U.S. already. And it's something that we believe is the right way to go in terms of cost and effectiveness.

Okay. Perfect. Just one last follow-up, if I may? That furnace install in the first quarter, again, was that already paid for? Or is this $2 million per quarter actually accounting for the cost paid for the purchase of the furnace as well and the installation?

That -- the cost of the furnace and the installation has been incurred through the cash out at Vidalia over the last number of quarters, and that forecast of $2 million a quarter remains the same into Q1 next year.

Okay. And you can't provide any sort of visibility as to how much the cost of that specific component was? That's basically all locked up.

No, we don't at this time.

[Operator Instructions] Our next question comes from Nick Herbert from Crédit Suisse.

A few for me, please. I might just start with Balama. What do you need to see in the market to have conviction around the restart there? And how do you get confidence that the demand is genuinely sustainable in the context of, I guess, historical offtakes, which have had volume agreements in place that haven't really materialized?

Thanks, Nick. I would start with the indicators, which are very clear for what we need to see for a Balama restart, and that's really sustained and ongoing growth in electric vehicle sales and production momentum, particularly in China, but also, obviously, with the support of the markets outside of China. And as I said earlier, we are seeing some positive signs, both of that growth momentum, but also of that momentum feeding back into the anode market. And then obviously, the main sign for us will be around how that leads through to inquiries and pricing and volumes for natural graphite in China. In terms of getting comfort around placement of material, particularly in China, what underpins that ongoing placement is really the momentum of growth. And if we look back over the last 2 years, the challenges that occurred with contract volumes and ongoing imports into China were really impacted by the reduction of subsidies for electric vehicles in the second half of last year and growth stalling for sales and production of electric vehicles in China at that time. So obviously, we're taking a cautious approach around that because it really -- we need to see demonstrated momentum for that growth in the Chinese market that gives some confidence that that pull-through to the natural graphite market will be sustained over time.

Yes. Understood. I guess, based on that momentum that you've seen in the September quarter, and you have the slide there, if that rate of growth continues, where do you think that would put you in terms of restarting, are you able to make a comment on that?

I think, as we've said over and over again over the last 3 years, one of the biggest challenges for Balama is how our intentions have been telegraphed to the global natural graphite market. So I don't want to go into any more detail from a commercial sensitivity perspective around potential timing and the extent to which the current momentum would lead to that restart decision. Albeit saying that, the rate of growth and the momentum around things at the moment is a very positive sign.

Okay. And then just on the Balama costs and the restructure you've undertaken there, and just interested, does that change the cost base once you were to restart? So I guess, is there any structural cost savings that you put through that operation that actually when it's up and running will lead to a lower cost base in the future than what it was?

I think we've said previously that we've done a lot of work to reduce the cost base there by around 20% to a point where running at 50% capacity or around 15,000 tonnes would see us with a cost base of around $450 FOB. And of course, there are ongoing pieces of work that would see us trying to drive that cost base lower. Obviously, the biggest impact on cost is increase in volume towards capacity. We've also been clear that we see that Balama running at full capacity, we'll see a cost base of around $330 a tonne. So there is a lot of potential movement there. But as I said, there are still projects and processes ongoing at Balama, not least of which looking into power sourcing, which may well see further a structural change in the cost base in the future.

Okay. And then just a couple on BAM. I mean you've spoken too at length around the increasingly supportive policy, U.S. battery capacity installation increasing and that theme around securing of ex China supply. Just interesting in how that's changed the discussions with potential strategic investors? Because you mentioned in the past that those discussions have been ongoing. So just, I guess, interested in how much genuine traction you're getting now? And if there has been any change there? And any comments you could make around potential timing for a financing arrangement at that facility?

Yes, sure, Nick. Thank you. Well, obviously, there's a lot of sensitivity around any commercial interaction and a small number of players. So we need to be very careful about what we can and do say. I think the most obvious change in the last 12 months has been the degree of understanding and work going on into long-term anode material supply, both in Europe and in the U.S. And we've talked at length previously about how much understanding there was in the cathode material part of the business over the last 3 to 4 years. And really, in the last 12 months, we've seen a significant change in momentum around the understanding and the thinking going into long-term sourcing of anode material. And I think the time frames that potential customers are thinking about are long term. We're not talking about the supply decisions that they'll make for periods of 1 to 2 years. We're talking about supply decisions that they will make, which will impact the 5- to 10-year time horizon and the sorts of model programs that they have in place. So in terms of timing, I think the best thing to point you to there is the catalysts on our own development pathway because they are the things that fundamentally drive that interaction. Obviously, in the background, you have views that potential customers hold around the supply-demand balance and the need to secure their own supply sourcing in the long term that may well drive different outcomes. And you see that in the other battery raw materials, where -- whilst there is a qualification process and a standard route to offtake and co-development, there is also sometimes views around supply-demand and securing of long-term supply, which drive different contractual or development arrangements. So the best thing that we can do at Syrah is continue to produce according to that milestone list and make sure that we have iterations of product in front of the customers and going through that cycle.

Okay. And just the second one on BAM. Can you just let us know what information will be made available within that DFS? So what we could expect to receive in that? I'm mindful that a lot of that will be commercial. But I guess, we'll have a clear growth path volume, CapEx, operating costs, all sort of your typical components of the DFS? Or will it be more constrained in terms of what you provided?

I think there will be an element of constraint, and that's something that we're working through at the moment. Clearly, there have been significant learnings from Balama's development as a project within a publicly listed company and what's largely a series of divisions or private competitors and the commercial sensitivities and visibility of information that came through our prior processes. So it's clearly taking that into account. The active anode material market is concentrated. It's a small number of players, both from a supply and consumption perspective. So I think what we can say is it won't look like a standard mining feasibility study process. But at the same time, we recognize that there's a very clear need for investors and stakeholders to have a strong view on things like CapEx, volume and the competitive nature of the facility. So it will be a balance. And as I said, it's something that we're working through at the moment.

Our next question comes from Glyn Lawcock from UBS.

I just wondered if you could talk through your thoughts around liquidity and cash flow for the business, while we're in this current state of not running. I mean cash spend in the quarter just gone was about $12 million before sales receipts and VAT recoveries. Obviously, while you're not running your inventory will eventually go to 0. So just your thoughts around December quarter outflows, the CapEx spend, that we're still running at around $2.5 million a quarter? Is the cash spend on production and staff cost, is that sort of the bare minimum now? I'm just trying to figure out, like, how -- I know you can't tell us when you're going to restart. But obviously, I'm just trying to work out how long you can hold out as well. And so I'm just trying to understand what the burn is for the next 3 months? And can you sell that inventory that you've got, the remaining sort of 5,000-odd tonnes?

Yes. Sure, Glyn. So in terms of the inventory, we continue to evaluate sales opportunities. They're certainly there. It's a clear decision around what's an appropriate price and placement of that material. So we don't see any issues in terms of continuing to sell that remaining inventory. In terms of the cash outflow, I think we said at the end of Q2 that we expected around $21 million through the second half of the year. And nothing has changed on that at this point in time. In terms of outflow for Balama, obviously, we continue to look at minimizing that. And I think in the coming quarter, you'll see lower spend around capital projects towards the end of the year. But at the same time, we do have a couple of one-offs around the annual environmental bond payment and 13th paycheck. So we are very comfortable with the forecast as laid out. But obviously, as we think through to next year, should these conditions persist for longer, we have to continue to evaluate what those preservation measures look like. And we have done a lot of work around that to this point. There are still some further measures that we can take, but we're obviously also balancing that around the desire to maintain the ability to restart relatively promptly and to continue the work at Vidalia. So as we think about the cash position and funding, we're balancing each of those aspects of where we are. But as you can imagine, it's absolutely top of mind in -- every day.

So just to clarify, the $21 million outflow for the second half of '20, that's pre any VAT receipts and sales receipts, is it? So that would suggest another $9 million in the December quarter, roughly, if you think it was $12 million as of September?

Yes. We don't forecast VAT recovery because it's been -- whilst it's been positive, it's been sporadic in terms of the timing of that. We haven't been making significant forecasting arrangements or indications around sales either. So yes, you're right on that front.

Okay. And just finally, could you just remind me the restart cost, if you were to push the button, say, before year-end, and therefore, have production up by end of Q1. Is there -- what sort of commitment will you need to spend to get it up over and above sort of this $7 million, $8 million a quarter of spend? Is there additional as well?

Yes. There's very little in terms of additional cost. As we said last quarter, we've retained around 220 people at Balama. So there is a requirement to bring back some additional staff. We'll bring on additional stuff. But really, that's the only significant cost item for Balama. Other than that, it's working capital of around the time line between the restart process and cash receipts from sales, which obviously is impacted by price and volumes, and the ramp-up profile around the restart.

We have no further questions so I'll hand back to Shaun for any final comments.

Thank you very much for everyone's participation today, and we look forward to a positive quarter with a number of catalysts on the Vidalia front and look forward to speaking with you at the time of the release of the feasibility study. Thanks very much.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for attending. You may now disconnect.